Wrongly pigeonholed over the years as a purveyor of tear-jerking tales of bolshy northern lasses battling the odds, Carol Birch has always had a feel in her fiction for young men. She has a particular soft spot for Jimmy Raffo, the male character in her prize-winning debut Life in the Palace.

"He was a very charming loser, in a block of flats in the 70s, and he was going nowhere. He drank too heavily, but God, he could make you laugh. He was like a big kid who never grew up and I'm still very fond of him."

Now 60, Birch this year published a new novel with a young man at its heart, and a name that seems deliberately to echo Jimmy "Raff". Jaffy Brown, or "Jaf", is the first-person narrator of her 11th novel, Jamrach's Menagerie, which last week put her on the Booker shortlist for the first time in her 25-year career, and saw her installed as second favourite to win the £50,000 prize behind Julian Barnes.

"Am I really?" she says with a startled look, when I mention the odds, "I didn't know that" – but quickly plays it down. "I have been very nervous over the past couple of weeks with the things I've had to do, and then I reached a point where I thought you might as well enjoy it, you might be dead next week. If you come across looking like a beached idiot, you just do."

Jamrach's Menagerie is a picaresque adventure, set at the point in the mid-19th century when the whaling industry went into decline. It tells the story, in his own words, of a fatherless boy from Bermondsey who gets a job with an importer of wild animals and joins an expedition to south-east Asia on which the sailors embark hoping to capture a dragon. The novel offers a warm and richly detailed portrait of Ratcliffe Highway (now the Highway), the road running east from the City of London, that was once renowned as a hotbed of vice and criminality. It touches on Darwinian natural history, and takes its place in a long and exalted line of maritime storytelling that runs from Coleridge's "The Rime of the Ancient Mariner" and Melville's Moby-Dick to Patrick O'Brian's Master and Commander.

But Birch wears her learning lightly. She has only done a couple of national press interviews before and makes a refreshing interviewee, unguarded and unrehearsed, and anxious not to say the wrong thing about her former publisher, Virago.

"I was out in the wilderness and feeling very down, wondering whether it was worth carrying on and they brought me in and I'll always be grateful to them," she says. "But they are a women's publisher and I'm not a natural reader of women's pages; I do see absolutely 100% why the women's movement had to happen, but my own experience of life has not really panned out as a male/female thing, I've got two sons and a bloke I live with. It's ridiculous, we've all got male and female in us anyway."

Jamrach's Menagerie is Birch's third historical novel, and the culmination of a second phase of her writing career that began with Turn Again Home (2003), a strongly autobiographical work that told the story of several generations of a northern working-class family. Turn Again Home earned Birch her best reviews and a place on the Booker longlist – the critic DJ Taylor pointedly said her book was as good as any of those shortlisted. For it, she also researched national service and the war in Malaya in order to write about one of her uncles. The book's success gave her the confidence to reach beyond her own life experience in the novel that followed a couple of years later, The Naming of Eliza Quinn, which includes a long and vividly imagined section about the Irish potato famine.

"It opened something up, and I thought I can write about things I don't know anything about, I can write as a man, in a different place, in a different time. Eliza Quinn came about as as result of the time I spent living in Ireland Walking in the mountains with my dog, I would see ruins sticking out of the ground covered by toadstools and mosses: they had been people's houses and the people had all left when everyone was starving; they had gone to America, to England, to Canada.

"The old potato ridges are imprinted on the landscape, and I was very moved by that. And I had the confidence by that time to say I can go back and write about somebody living in those times, and what it was like to be living in a village where you've lived for generations with your neighbours, and suddenly this huge thing comes along and your relationship with them changes completely. What do you do? You help your own children and yet you see people down the road, and they're starving. All these moral dilemmas."

In the course of writing that novel she became interested in the stories of transported convicts. On holiday in Suffolk she came across a pamphlet about Margaret Catchpole, a servant and horse-thief who was shipped to Australia. Catchpole became the heroine of her next book, Scapegallows, and this in turn led Birch to Ratcliffe Highway. "I thought where would a woman go who is involved with maritime criminals, who has a stolen horse? She would go to Ratcliffe Highway. Fantastic stories came up and then I got into Jamrach" – the menagerie owner who is the only real, historical person in Jamrach's Menagerie.

Carol Birch – she took the surname from her first husband – was born in Manchester in 1951, the younger of two daughters. Her parents met in an armaments factory and after the war her father continued to work as a metallurgist while her mother, who had left school at 14, turned herself into a "50s housewife".

The division of labour was total and her parents "were not very kind to one another", with her father remote or absent for much of the time. "But he had this amazing double life. He played the trombone and was in this band called the Saints. They were very big in Manchester in the 40s and 50s, he made records with George Martin, he was in the warm-up band for Louis Armstrong for his 1956 tour. "At two o'clock in the morning you'd hear this jazz whistling coming down the road and it would be dad, and then he'd come home and go to bed and in the morning he would go to work and we hardly ever saw him."

Both sisters made it to the grammar school, and while Carol lost her place near the top of the class she passed her exams. "My teens weren't a happy time, I don't look back on them with any great pleasure." After studying English at Keele university she moved to London, where she worked at the Camden headquarters of the English Folk Dance and Song Society and spent much of the 70s socialising, going to gigs and drinking.

Birch calls her 20s her "mis-spent youth", but talks with enthusiasm about the music. The sailors in her latest novel sing all the time, as do characters in earlier books, and when I ask where she found the sea shanties in Jamrach's Menagerie she says simply "I just know them".

The mood darkened after she moved with her first husband, an artist, to a block of flats in Waterloo. "It was one of those times when you look back and it was bloody awful, but we had a really good laugh," she says. "It became quite black, there were gangs, fights, horrible things happening, you'd wake at night and hear people." She had friends who died, one "dear sweet man who did a Jimi Hendrix, choking on his own vomit", and the drugs got "heavier and heavier". She and her husband left for a semi-derelict cottage in the west of Ireland.

It was in Ireland that Birch, around her 30th birthday, decided to turn herself into a writer. Before that "I just scribbled lots of teenage angst which was a load of rubbish, there was nothing really of any worth before then. I knew I could string words together in a lovely way, and appreciate other people's writing, but I had to get to the point where I was going to sit down in a room on my own for hours and hours on end and actually it's bloody boring."

She sent some stories to Marion Boyars because she admired the way the publisher had defended Hubert Selby Jr's novel Last Exit to Brooklyn against charges of obscenity in court. She also followed up a suggestion to contact the literary agent Mic Cheetham, who met Birch when she moved back to London, as her marriage fell to pieces. Cheetham found a publisher for the manuscript, based on Birch's years in Waterloo, that became her first novel.

In an essay for the Independent in 2003, written to coincide with the publication of Turn Again Home, her most obviously northern novel, Birch attacked the stereotypes that bedevil cultural representations of life in Manchester, Liverpool, Leeds. "North comes in two types: Hovis and Grim", she wrote, before singling out Ken Loach for his relentless pessimism and revealing that she can't stand Kes.

Although she happily acknowledges her debt to working-class writers – including Shelagh Delaney, as well as the less well-known Louis Golding and Howard Spring – the northern tag did not help her sales. And while she is full of warmth towards Lancaster, the "lovely, vibrant little town" where she made her life with second husband Martin Butler – because that was where he got a job, and they could not afford to stay in London – the fact that she sometimes gets itchy feet and thinks about moving (she won't, because the place matters to her children) is perhaps reflected in the global reach of her latest work of fiction.

Right now, Lancaster needs her: funding cuts threaten its theatre, gallery, dance studio and the books festival where she will appear the night after the Booker ceremony. The window of the local bookshop proudly declares Jamrach's Menagerie to be "Our New Favourite Book", and Birch our "premier local author". She says "it will be a terrible tragedy if Lancaster loses those things, it's a small town with a thriving arts scene and it needs them."

Birch thinks one reason she has not been more successful is that her books fall somewhere in between the literary and the commercial, making them difficult to market. She knew her track record wasn't good and her books were losing money, but had hopes when she began Jamrach that she had found a voice that worked. Disappointed by the reaction from her regular publisher, she accepted a higher offer from Canongate – "One of the things I said was don't put a moony girl on the cover. And they said we won't. It felt very liberating for me to get out of this whole woman thing; I did tend to write from a female perspective, it was so nice to get away from it, and have this freedom to go into something completely different."

Jamrach's Menagerie was selected for Richard and Judy's book club as well as by the Booker judges. "I think maybe in the past with some books I was trying to please the publisher and what they perceived as my public, rather than entirely pleasing myself. And with this one I'd got to the stage where I thought, sod this."

Perhaps this unwillingness to compromise is also linked to Birch's circumstances. Her younger son recently left home for university; and it is surely no surprise that this mother of two grown boys has now written such a tender novel about a young man setting out in the world to make his way.

Birch thinks carefully about the importance of the truth when writing about real people and situations, and admits to reservations about Hilary Mantel's revisionist portrayal of Thomas Cromwell in Wolf Hall. Her research has given her a powerful sense of past injustice, of how cruel life has been for the poor – "a seven-year-old was hanged at King's Lynn!" But for the all the extremity of the situation in which she places her seafaring adventurers, who are shipwrecked and resort to cannibalism in her novel's dramatic middle section, there are no sadists in Jamrach's Menagerie. Rather, the novel is enjoyable for the degree to which its characters behave well.

I wonder if she fought shy of the less palatable truth about human nature. Did she get carried away with the English tradition of sympathy for the underdog, the villain who is also a victim of a system stacked against him?

"The reports from the Medusa" – a French frigate sunk in 1816 – "are horrific. But I started getting interested in this from the Essex [the ship whose sinking inspired Moby-Dick]. Now if you read the survivors' accounts of the Essex, and there are a lot of them, it does seem that people behaved very well.

"I read other accounts of people who had survived extreme situations, including the Andes plane crash survivors, Arctic explorers and so on, and while there are accounts of people behaving abominably, there are also accounts of people behaving compassionately and humanely. I could have done a Lord of the Flies thing where everybody turns wild, but in fact it seemed to me that possibly that's been overdone. Partly what moved me to write this novel was how much love there was in the accounts of the people who survived for the people who hadn't."